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BLM Approves Utah Recreational Land Exchange

April 25, 2014

The U.S. Bureau of Land Management (“BLM”) executed its Decision Record on February 7, 2014 authorizing the agency to complete what is commonly referred to as the “Utah Recreational Land Exchange.” This exchange proposal between the BLM and the State of Utah School and Institutional Trust Lands Administration (“SITLA” or “State”) has been in the making since 2005 and authorizes the conveyance of 33,608 acres of federal land to the State in exchange for 25,034 acres of State owned school trust land. 

The exchange places valuable recreational land assets in the hands of BLM and consolidates State land ownership patterns in a manner that is better suited to achieve the State’s mandate of generating revenues for the State school fund. BLM’s land exchange program has been the subject of significant controversy over the last twenty years. The innovative legislative and administrative strategies used in connection with the Utah Recreational Land Exchange provide a template for successful future exchange projects.

1. Nature of Lands Conveyed

The intended purpose of this legislatively mandated exchange was to place valuable conservation and recreational lands into public ownership, including lands within and contiguous to Wilderness Study Areas (WSA’s), Areas of Critical Environmental Concern (ACEC’s) and land and mineral interests near Utah’s Colorado River Corridor, the Book Cliffs and Dinosaur National Monument.[1] The parcels conveyed to the U.S. included Corona Arch (one of the largest freestanding arches in the U.S.), the Morning Glory Arch hiking area and portions of the popular “Slick Rock” mountain bike trail. The U.S. also acquired significant acreage located either within or adjacent to designated ACEC’s and WSA’s. The newly designated federal lands included habitat for threatened, endangered and “non-listed” sensitive species, including the Mexican Spotted Owl, the Southwestern Willow Flycatcher, the Greater Sage Grouse and other threatened and sensitive plant and animal species.[2] In addition, the BLM received large areas of important big game habitat, including prime areas for pronghorn, mule deer, Rocky Mountain Elk and big horn sheep. The lands conveyed to BLM included important winter habitat in areas where future State land mineral extraction plans could have been detrimental to big game resources.[3]

The State, on the other hand, received lands that were more suitable for mineral development and resource extraction activities. From an overall environmental impact perspective, the transfer of federal lands into State ownership resulted in lesser impacts to natural resources. Nearly all of the lands conveyed to the State were open to mineral leasing and development under federal management.[4] While the exchange will ultimately facilitate additional energy development by the State of Utah, the environmental impacts will be offset by the consolidation of land management patterns and the conveyance of valuable recreational lands and natural areas to the federal government.

2. Controversy and Motivation for Exchange

Motivation for the exchange was provided, in large part, by the checkerboard pattern of land ownership in the State of Utah. Under the Enabling Act of 1894, the State received four sections of land from the United States in each township. The State manages these lands to build and grow perpetual endowments for its public institutions. Utah’s public school system is the largest beneficiary, holding 96 percent (96%) of all Utah trust lands. SITLA manages its land portfolio to generate revenues through oil, gas and mineral leasing as well as real estate sales and development. The checkerboard pattern of State and federal land ownership created land management conflicts that significantly impeded SITLA s ability to maximize revenues for the benefit of the schools. State parcels were entirely surrounded by federal areas where development opportunities have been restricted or prohibited to protect recreation and other natural resource values. SITLA initiated the Utah Recreational Land Exchange in an effort to alleviate future land management conflicts.

The four federal land management agencies (BLM, the U.S. Forest Service, the National Park Service and the U.S. Fish and Wildlife Service) each have different statutory authority for acquiring and exchanging lands. The broadest degree of exchange authority has been granted to the BLM. BLM is authorized to conduct land exchanges under the authority of the Federal Land Policy and Management Act of 1976 (“FLPMA”), as amended by the Federal Land Exchange Facilitation Act of 1988 (FLEFA). FLPMA and FLEFA authorize BLM to proceed with an exchange when it will serve the “public interest” and the lands exchanged are of “equal value.” Despite this congressional mandate, controversy and criticism have plagued BLM land exchanges for decades. Critics of the exchange process allege that BLM and the public are frequently shortchanged through an exchange process that allows proponents of an exchange to convey smaller parcels of land with “special environmental values” for larger tracts of public land that lie in the path of development or have significant future development potential. While the law requires the public to receive “equal value” in an exchange, the value of land is inherently subjective. Endangered species, clean water, open space, wetlands, wildlife habitat and riparian areas are not conducive to valuation through traditional methods. In many past cases, land valuations and the federal appraisal process have resulted in lower federal land values to the detriment of the public and have created windfalls for private exchange proponents. Over the course of the last ten years, federal audits have been conducted by the Department of the Interior, Office of Inspector General, the General Accountability Office and the Appraisal Foundation and have resulted in criticisms of BLM and its exchange process. Audits have received significant attention from Congress, the media, environmental organizations and affected interest groups. While BLM reluctantly proceeds with the processing of certain exchanges, the process has become increasingly controversial, time consuming, expensive and difficult to consummate.

3. Administrative and Legislative Exchange Proposals

Section 206 of FLPMA provides BLM with the statutory authorization to proceed with an exchange on an “administrative” basis without further congressional authorization. However, Congress frequently enacts specific legislation mandating that the agency proceed with a particular exchange proposal. The rules governing a legislatively mandated exchange will vary according to the specific statutory authorization. Congress can exempt an exchange from BLM’s regulatory provisions and from the requirements of the National Environmental Policy Act (“NEPA”). In past cases, various congressional exemptions have resulted in abuses and controversy to the detriment of the BLM exchange program.

FLPMA Section 206 (43 U.S.C 1716) authorizes BLM to proceed with an exchange upon a determination the “public interest” will be served by making the exchange. By rule, exchanges are entirely discretionary with the agency and the Secretary is not required to exchange any federal lands.[5] BLM regulations allow any party to terminate an exchange, without further liability or reimbursement obligation, at any time prior to the execution of a “binding exchange agreement.”[6] As a result, the parties to an administrative exchange are required to expend considerable resources without any binding commitment that BLM will ultimately elect to proceed with the exchange.

Federal regulations require the Secretary to insure an “equal value exchange.”[7] An exchange of land shall be based on “market value” as determined under applicable appraisal requirements.[8] The market value for land is to be determined by a “qualified appraiser” under the “Uniform Standards for Federal Land Acquisitions.” BLM regulations contain a mechanism for “value equalization” or a “cash equalization waiver.” To equalize the values of federal and non-federal parcels involved in an exchange, the parties may agree to either modify the exchange proposal to add or exclude lands or utilize a cash adjustment.[9]

Both BLM and the non-federal party will incur significant expenses in connection with the prosecution and consummation of a land exchange. Expenses include the costs of land surveys, appraisals, mineral examinations, timber cruises, title searches, cultural resources surveys and hazardous substance analysis. By rule, the parties to an exchange are to bear their own costs associated with the exchange.[10]

The discretionary nature of BLM’s authority and its limited and declining budget makes it very difficult to proceed with an administrative exchange. In most cases, BLM does not have the funds or personnel to pursue an exchange even when a proposal is entirely consistent with its land management objectives. In the limited cases where BLM is willing to proceed with an administrative proposal, the agency will require the non-federal party to pay all of the significant costs associated with an exchange. The non-binding nature of BLM’s commitment to an exchange makes this a particularly onerous burden for the non-federal party. As a result of these factors, it has become common practice to seek legislative authorization for specific exchange proposals. The Utah Recreational Land Exchange clearly exemplifies the benefits of proceeding with a legislative exchange.

4. Structure of the Utah Recreational Land Exchange

The Utah Recreational Land Exchange was originally conceived as an “administrative exchange” under FLPMA Section 206 and its implementing regulations but was ultimately consummated under the authority of the Utah Recreational Land Exchange Act (“URLEA”) of 2009 (Public Law 111-53). URLEA was passed with bipartisan support in 2009 and authorized BLM to proceed with the exchange of designated parcels within the State of Utah. By statute, the exchange was subject to all valid existing rights in the lands and subject to the authority of Section 206 of FLPMA.[11] The statutory incorporation of FLPMA Section 206 required BLM to follow its administrative rules and to comply with applicable NEPA requirements. As a result, BLM adhered to its applicable appraisal and land valuation requirements and was required to demonstrate “equal value” for the exchange. The incorporation of BLM’s administrative rules provided mechanisms and safeguards that worked to eliminate potential controversy associated with the exchange, but increased costs and the time to complete each exchange.

While URLEA required BLM to comply with its regulations, the legislation contained a number of specific provisions that helped to assure completion of the exchange. First, URLEA provided the agency with a critical legislative mandate to proceed with the process. Without such a mandate, the agency could not have devoted the substantial time and resources necessary to consummate the exchange. URLEA required the agency to complete the process within a five year timeframe, mandating the immediate allocation of resources by BLM.

Second, Section 3(c) of URLEA specifically directed that all costs associated with the exchange, including resource surveys, appraisals, NEPA and all related costs, were to be shared equally between the State and the federal government. This provision provided a legislative departure from BLM’s administrative regulations which provide that each party bear its own costs associated with an exchange[12]. The statutory cost sharing mechanism provided BLM with a critical incentive to complete the exchange process. BLM’s administrative rules allow the parties to make “adjustments to the relative values involved in an exchange transaction” to compensate a party for assuming costs ordinarily borne by the other party. As a result, the State could offer to assume responsibility for costs in exchange for a corresponding adjustment in land values. BLM’s fear of losing land values through existing compensation measures provided the agency with additional incentive to secure the funding necessary to complete the exchange.

Third, URLEA provided a detailed mechanism that allowed the parties to adjust the make-up of the exchange parcels based on the results of its appraisal process. While URLEA directed the exchange of certain land parcels, it also allowed the parties to eliminate lands from the exchange in order to equalize values.[13] URLEA also allowed parcels to be removed from the exchange in the event land title was not acceptable to BLM or the parties were not able to reach an agreement on land values.[14] Utilizing this mechanism, BLM and the State executed an Agreement to Initiate Exchange (dated August 2011) that identified specific prioritization measures for the elimination of parcels in the event valuations were not determined equal through the appraisal process. Completion of the appraisal reports in July 2013 revealed a significant difference in land value ($10,246,000), making it necessary to eliminate 36 parcels of non-Federal land (totaling 20,272.76 acres) to equalize the value difference. The equalization mechanism and agreed priority scheme were critical components necessary to overcome the value differences identified through the appraisal process.

Fourth, URLEA provided for a reservation by the U.S. of an interest in revenues from future oil shale production on certain lands. URLEA Section (f) provides that BLM shall reserve a fifty percent interest in revenues obtained from federal exchange lands that contain oil shale resources. The parties’ agreement to share in future revenues from oil shale was critical to the ultimate success of the exchange. From the outset of this proposal, the State and BLM understood that the value of oil shale resources could be significant if ultimately realized. At the same time, the parties understood the prospect for such revenue was somewhat speculative. As a result, the parties agreed to share in the ultimate revenues rather than to jeopardize the viability of the exchange based on the valuation of oil shale resources.

Fifth, the legislative directive of URLEA superseded BLM’s internal management plan determinations that did not authorize the disposal of all of the exchange parcels. Several of the federal exchange parcels were specifically identified for “retention” in BLM’s Moab and Vernal Resource Management Plans. The exchange mandate of URLEA and specific reference to such parcels allowed BLM to proceed with disposal without having to undertake the process of amending its underlying resource management plans.

Sixth, while full NEPA compliance was required, URLEA’s legislative mandate minimized options for consideration, ultimately facilitating the agency’s decision to proceed with an Environmental Assessment. Based on the alternatives analyzed by BLM, the agency made a determination that the proposal “is not a major Federal action and will not significantly affect the quality of the human environment.”[15] URLEA’s directive to proceed with the exchange resulted in a NEPA process that considered only two alternatives: the Proposed Action and the No Action Alternative. Without this directive, the agency would have been required to consider a multitude of alternative scenarios that would have significantly complicated and extended the NEPA process.

5. Keys to Success- Lessons for Future Exchanges

The Utah Recreational Land Exchange provides substantial public benefit to both the BLM and the State of Utah. While such reciprocal public benefits would be difficult or impossible to duplicate in connection with a private exchange proposal, this exchange illustrates a number of successful strategies that would benefit any future land exchange. From the outset of this proposal, the State and BLM utilized a widespread public outreach process to identify all of the potentially affected stakeholders. The parties successfully utilized this process to build support for the proposal and to identify specific roadblocks that could be resolved through the adoption of bi-partisan legislation. The specific legislative mandate of URLEA required BLM to proceed with the proposal and allowed the agency to overcome its budgetary constraints. At the same time, the legislation incorporated the requirements of FLPMA Section 206 and its implementing regulations, with limited and targeted exceptions. The legislative incorporation of existing administrative safeguards (equal value exchange, public interest determination, appraisal process under federal standards, full adherence to NEPA) allowed the parties to avoid much of the criticism and controversy that has defeated other exchange proposals. The parties also recognized that it is difficult or impossible to accurately predict the results of the federal land valuation and appraisal process. As a result, the legislation contained a specific mechanism and priority scheme that allowed for the adjustment of exchange parcels based on the results of the appraisal process. The parties also adopted a unique revenue sharing scheme that facilitated “equal value” appraisals and avoided an inevitable disagreement over the value of lands with oil shale resources. The result of this hybrid legislative/administrative process was a widely supported exchange that met the objectives of the parties and affected stakeholders.

For more information regarding this article, please contact Myles A. Conway or any other member of Marten Law’s Property Development practice group. 

[1] House Report 111-179 and Senate Report 111-67.

[2] The Greater Sage Grouse was placed on the list of species that are candidates for ESA protection on March 5, 2010. The U.S. Fish and Wildlife Service will make a final decision to list or not list the greater sage grouse as a threatened or endangered species by December 5, 2015. In one potentially controversial aspect of the exchange, the U.S. transferred significant areas of sage grouse occupied habitat to the State. The EA justified the transfer based on the low and declining populations in the area and characterized the transferred habitat as “marginal brood-rearing and wintering habitat” and noted the presence of authorized activities that impact the quality of the habitat under federal management. While the EA noted that future state management for oil and gas development could result in temporary or permanent loss of sage grouse habitat and increased bird mortality, the quality of the habitat lost was characterized as declining and “not supporting many birds.” In contrast the sage grouse habitat obtained by the U.S. in the exchange included areas of excellent nesting, brood-rearing and wintering habitat.

[3] While the exchange did result in the transfer of federal lands containing big game habitat, the areas transferred to the State were already open to mineral leasing under current federal management and the EA determined habitat could be adequately protected through State restrictions on the timing of development that are tied to the presence of crucial wildlife habitat.

[4] The exchange did provide the U.S. with lands it withdrew from mineral leasing. However, the federal closures were deemed consistent with federal management objectives on surrounding public lands. The EA determined that the actual impact of federal closures of mineral leasing and disposal were minimal because of existing access restrictions and lack of industry interest in the closure areas.

[5] 43 CFR 2206.0-6(c); 43 CFR 2206.0-6(a).

[6] Under 43 CFR 2201.7-2, the parties do not execute a binding exchange agreement until the title review, appraisal and NEPA processes are fully complete and BLM has elected to proceed with the exchange. In practice, the parties will have expended considerable resources long before a binding agreement is executed.

[7] The rules authorize the exchange of lands of “approximately equal value” under limited situations where the value of the lands to be conveyed out of federal ownership is not more than $150,000.

[8] “Market value” is the most probable price in cash the lands or interests in land would bring in a competitive and open market. 43 CFR 2206.0-4(n).

[9] 43 U.S.C. 1716(b).

[10] 43 CFR 2201.1-3(a).

[11] Prior legislative land exchanges between SiTLA and BLM were authorized by congress without requiring the agency to proceed under Section 206 of FLPMA. The Utah Schools and Land Exchange Act of 1998 (Public Law 105-335) authorized the Grand Staircase and Escalante Exchange and the Utah West Desert Land Exchange Act of 2001 (Public Law 106-301) authorized federal land exchanges in Utah without any requirement that BLM comply with its regulatory requirements under FLPMA.

[12] 43 CFR Section 2201. 1-3.

[13] URLEA Section 3(i)(2) also allows a cash payment of not more than five percent of the total value of all lands transferred out of federal ownership, based on appraisal, as an equalization measure.

[14] URLEA 3(i).

[15] Decision Record at page 1.

 

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